On October 13, 2016, the Commodity Futures Trading Commission
(the "CFTC") approved an Order delaying for one year the
reduction of the threshold for determining whether an entity
constitutes a "swap dealer" for purposes of the U.S.
Commodity Exchange Act.1 Currently, persons are
not considered to be swap dealers unless their swap dealing
activity in aggregate gross notional amount measured over the prior
12-month period exceeds a de minimis threshold of
$8 billion. This threshold had been scheduled to
automatically decline to $3 billion on December 31, 2017, but the
Order extended that date to December 31, 2018, absent further
action from the CFTC.

The delay in the threshold decline follows the recent issuance
by the CFTC of the Swap Dealer De Minimis
Exception Final Staff Report (the "Final
Report").2 The Final Report supplemented a
preliminary report (the "Preliminary Report")3
on the same matters and provided a summary of numerous comment
letters the CFTC received in response to that report, as well as
further data analysis. These two reports together comprise
the "report" contemplated by CFTC Regulation
1.3(ggg)(4)(ii)(B), which directed the CFTC to issue a report on
topics relating to the definition of the term "swap
dealer" and the de minimis threshold.

The Preliminary Report analyzed available swap data (primarily
from the four swap data repositories ("SDRs") registered
with the CFTC) during the period from April 1, 2014, through March
31, 2015, for five asset classes: interest rate swaps
("IRS"), credit default swaps ("CDS"),
non-financial commodities ("Non-Financial Commodities"),
foreign exchange derivatives and equity swaps. However, the CFTC
noted in the Final Report that it faced numerous challenges in data
quality available from the SDRs, including a lack of information
regarding whether a swap was entered into for dealing purposes and
a lack of reliable notional data for all but IRS and
CDS.4

The CFTC solicited comments on several topics in the Preliminary
Report, including: (i) whether the current de
minimis threshold should be maintained, raised or
reduced; (ii) whether swaps that are executed on a swap execution
facility ("SEF") or designated contract market
("DCM") and/or centrally cleared should be excluded from
an entity's de minimis calculation; (iii)
whether the de minimis exception should be based
on multiple factors (e.g., number of
counterparties) instead of only gross notional swap dealing
activity; (iv) whether a de minimis threshold
should be established for each asset class; and (v) whether the
current exclusion available to insured depositary institutions
should be expanded. The CFTC received 24 comment letters from
banks, industry groups, legislators and other market participants
and interested parties in response to the Preliminary Report.

The Final Report analyzed an additional one-year period of data
for the IRS, CDS and Non-Financial Commodity asset classes to the
period considered in the Preliminary Report.5 The
primary conclusion of the Final Report was that "only a
substantial increase or decrease in the de
minimis threshold would have a significant impact on the
amount of IRS and CDS covered by swap dealer regulation, as
measured by notional amount, transactions, or unique
counterparties."6 The following chart from
the Final Report summarized the results leading to this
conclusion:7

Consistent with the Preliminary Report, the Final Report
estimated that approximately 84 additional entities (from 145 to
229 entities) trading IRS and CDS might have to register as swap
dealers if the de minimis threshold declined to
$3 billion. However, this 58% increase in the number of
entities regulated would result in coverage of less than 1% of
additional notional activity and swap transactions, and only 4% of
additional unique counterparties. Interestingly, as reflected
in the table set forth above, an increase of the de
minimis threshold to $15 billion would yield similar
results: 34 fewer entities having to register, but reduced coverage
of less than 1% of additional notional activity, swap activity and
unique counterparties.

Moreover, the data analyzed indicated that a substantial
majority of swaps (99% of IRS, 99% CDS and 89% Non-Financial
Commodity swaps) involved a registered swap dealer during the final
review period. In conclusion, the CFTC stated that it may want to
consider whether to set the de minimis threshold
to its current $8 billion threshold, allow the threshold to decline
to $3 billion, as scheduled, or delay the reduction of the
threshold while it continues its efforts to improve data
quality.

Separately, the Final Report indicated that the comments
received generally expressed support for excluding from an
entity's de minimis calculations swaps
entered into on a SEF or DCM and/or centrally cleared, but that the
CFTC had not had sufficient time to evaluate several factors that
could impact the implementation of such an
exclusion.8

In addition, the Final Report stated that the CFTC may want to
consider: (i) maintaining a single de minimis
threshold based on notional amount (instead of a threshold based on
multiple factors); and (ii) maintaining the single gross notional
de minimis exception (instead of adopting a
class-specific approach) or consider adopting a class-specific
approach in the future as data quality improves.9

Finally, the Final Report indicated that the CFTC may want to
consider whether the conditions to the current exclusion to the
swap dealer definition for insured depository institutions are
overly-restrictive.

5 The CFTC focused on IRS and CDS data because reliable
notional data was not available for the other asset classes. Final
Report, at 20. The Final Report highlighted that many of the
same limitations noted in the Preliminary Report for Non-Financial
Commodity swaps persisted, but that the CFTC nevertheless performed
an analysis using counterparty and transaction counts for this
asset class. Id. at 19-20.

6 Id. at 20.

7 Id. at 21 (Table 1).

8 Id. at 25.

9 Id. at 26.

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guide to the subject matter. Specialist advice should be sought
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